Dealers use EU tariffs to squeeze Cambodian farmers. The episode holds warnings for 2020 as EBA protections remain under threat.
Last January, the European Union (EU) introduced tariffs on Cambodia and Myanmar’s rice imports to protect rice producers within the bloc.
Buyers are using the tariffs and the reduced demand for rice in Europe to pay Cambodia’s rice farmers below market value for their harvest.
Rice farmers are feeling the pinch
Following the tariff introductions, rice exports from the Kingdom to the EU fell by 30% in 2019. Buyers are using falling exports as an excuse to drive rice prices down.
Choeun Socheat, a rice farmer in Cambodia’s Battambang province, told VOA that rice prices are down to US$232 per ton, US$60 less than the previous year’s rate. “The dealers told us that the price is low because they are buying rice to keep at the rice mills, but not for exporting abroad.”
The numbers tell a different story
While EU rice imports are down, many of the losses have been offset by increased Chinese purchases.
This year, China pledged to increase the quantity of rice bought from Cambodian farmers. In 2018, Beijing agreed to import 300,000 tons of Cambodian rice. In 2019, it increased this figure to 400,000.
As a result, despite decreasing demand in Europe, Cambodia’s export volume endured in 2019. The Kingdom sold 620,106 tons of rice last year, a drop of barely 1% on 2018’s tally. Around 40% of the country’s rice went to the Chinese market. The total value of the Kingdom’s exports fell by 4.3% to US$501 million.
“We have to sell with the price dealers set,” Socheat said. But export figures indicate that Cambodian farmers are being manipulated by dealers looking to capitalise on their limited access to market information.
The government’s response reveals a lack of empathy
Cambodia’s rice farmers face an increasingly uncertain future. In addition to being at the mercy of predatory dealers, rising pesticide and fertilizer prices mean they need to make even more money to break even.
One farmer from Omal commune in Battambang estimated that he needed to fetch US$267 per ton to recover fertilizer costs.
Extreme weather patterns are deepening reliance on these expensive chemicals. Droughts, particularly in the country’s north, have left around 32% of farmers without access to water or irrigation facilities.
In December 2019, around 45,000 hectares of rice-growing paddies were affected by severe droughts. The government was able to provide assistance to farmers managing around 20,000 hectares; less than half of those that needed it.
A farmer in Pursat province described how he needed to invest an additional US$500 in equipment to pump water from a nearby irrigation canal to his 16-acre rice paddy. These increased overhead costs reduce farmers’ abilities to absorb the costs of a low yield.
To maximise output and avoid a reduced harvest, farmers are increasingly turning to pesticides and fertilizers. Between 2006 and 2016, fertilizer consumption more than doubled across the Kingdom.
In the face of drought, rising overheads, and lower buyer prices, the government has shown a lack of empathy for Cambodia’s rice farmers.
Last month, Cambodian Prime Minister Hun Sen said his government would not intervene to prop up rice prices. While speaking at a graduation ceremony in Phnom Penh, he said Cambodia is “not a communist country” and the falling rice price “has its reasons.”
The government already takes steps to regulate water and electricity prices across the Kingdom and has intervened in petroleum companies’ pricing mechanisms.
The prime minister also suggested that the falling prices were due to the poor quality of some Cambodian rice. He suggested that those growing high-quality rice had not experienced price decreases and that those complaining were growing sub-par paddy.
Simultaneously, Hun Sen has urged rice farmers to reduce their chemical use on paddy fields. In June, at another university graduation ceremony, he spoke of the “strong demand for rice without chemicals,” and alluded to the safety concerns of using chemical fertilizers and pesticides.
If Hun Sen’s government is adamant about avoiding price regulation measures, there are other ways it can assist Cambodia’s rice farmers. Providing farmers with improved access to new technology to increase crop yields would reduce reliance on costly pesticides and fertilizers.
Additionally, improving irrigation in the rural north would improve harvests. With more devolution and budgetary freedom, each region would be able to channel funds to irrigation projects faster than under a centralised system. This would mean local agricultural communities receiving assistance far quicker.
The government could also provide capital for millers to spend on rice purchases. Millers that buy rice for export report a shortfall of US$200 million, severely limiting the price they can offer farmers. Although the government provided a US$50 million capital injection, it falls short of the US$200 million needed. This may not prevent middlemen from exploiting farmers to sell directly to millers, but it might allow farmers with direct access to millers to demand more for their product.
The plight of Cambodia’s rice farmers was a litmus test for the government; it performed poorly
Cambodia is on the cusp of losing the preferential trade privileges afforded under the EU’s Everything but Arms (EBA) agreement. The EU issued a warning to Hun Sen in November calling on the prime minister to improve Cambodia’s human rights situation or face the suspension of tariff-free trade with the bloc.
The EU is approaching the end of its 18-month review period. Meanwhile, Hun Sen remains obstinate.
The fate of the nation’s rice farmers following the introduction of EU tariffs should serve as a warning for the rest of the Cambodian economy. The suspension of the EBA would see all Cambodian exports to the EU subject to tariffs. The IMF estimates that this could wipe three percentage points off GDP growth projections.
Other segments of the Cambodian economy will fare far worse than the rice farmers should the EU rescind Cambodian trade privileges. For example, the garment sector, which makes up around 75% of EU imports from the Kingdom and employs some 86% of Cambodian factory workers, would be unable to offset a decline of EU trade with increased Chinese demand.
For garment manufacturers and their employees, the plight of Cambodia’s rice farmers and the government’s indifference will be cause for concern. Hun Sen’s government is evidently unwilling to offer key Cambodian industries the protection they will so desperately need. Nor is it willing to make the necessary human rights improvements to save the EBA.
As more industries begin to face the disruption of extreme weather patterns, rising overhead costs, and predatory middlemen, Hun Sen’s message to Cambodian rice farmers will echo across the Cambodian economy: you are on your own.